Terrorism Coverage: lessons
learned from the Boston Marathon
bombing
Tim Press & Sean Jackson
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Tim Press, Head of Special Risks, Miller Insurance Services LLP
Tel: 011 44 20 7031 2685
Email: tim.press@miller-insurance.com
Tim has worked in the insurance industry since 1988 and joined Miller in 1996. He is Head of
the Special Risks team which covers product areas such as political risks, contract frustration,
trade credit, terrorism, political violence and supply chain insurance.
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Sean Jackson, Director, IMA Global Risk, IMA Corp.
Tel: 913-982-3471
E-Mail: sean.jackson@imacorp.com
Sean joined IMA in 2013 and has provided risk solutions to some of the largest global
companies. As Director of IMA’s Global Risk Division, Sean is responsible for IMA’s
multinational clients who travel, trade or have operations overseas. He has 22 years of
experience assisting companies in managing their exposures all over the world. His unique
experience and expertise crosses all industry segments and coverage lines.
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Christine Hoppe, Risk Manager, CORAM Health Care
Tel: 303-672-8746
Email: christine.hoppe@coramhc.com
Christine has been a risk professional for over twenty years. In that time, she has worked for
insurance carriers, brokers, TPAs and as a risk manager. When not is the office you will find
her on the running trail. Christine also competed in the 2011 Boston Marathon. She is
currently employed at CORAM Health Care (recently acquired by CVS).
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What to Expect
After attending this session you will have gained an understanding of:
• How the Boston bombings add to the TRIA debate
• TRIA/TRIPRA
• Alternatives to TRIA - stand-alone terror market and political violence
• How to expand coverage for international exposures
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First – The Good News
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Boston Marathon bombing - timeline
April 15, 2013
2.49pm: Two
bombs detonated
15 block zone shut
off by police
Hunt for the
Tsarnaev brothers
April 19 –Boston is
still in lockdown
April 19, 8.50pm –
one suspect dead,
the other captured
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Source: FBI/AP
Source: Flicker by
Aaron Tang licenced
under
CC BY 2.0
Source: Massachusetts
State Police Air Wing
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Boston bombing in numbers
• Property and casualty insurers paid a total of USD1.9m in bomb-related
claims
• Nearly half of 133 business interruption claims rejected
• 11 of 27 claims for commercial property damage rejected
• 72 hour exclusion
Source: Division of Insurance
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Did TRIA respond?
• Some shops directly impacted by the bombings, such as the Forum
restaurant on Bolyston Street, were still closed more than 45 days after
the event
• Stores on Bolyston Street that were undamaged by the blasts were closed
for nine days as the FBI carried out their investigation into the bombings
• Other businesses across Boston shut their doors as state authorities
closed down the city’s transport system and issued a shelter-in-place
order during the manhunt.
• Tsarnaev brothers initially labelled terrorists by Obama and the media
• However not classified as a “certified act of terrorism”
• Leads to questions on process and timing of terrorism certification under
TRIA.
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Terrorism
A dangerous world
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Terrorism insurance pre 9/11/01
• Risks in various worldwide locations including:
Middle East/ Israel
o Sri Lanka
o Colombia
o South Africa
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United Kingdom
Spain
Kenya
Tanzania
• Otherwise general “all risk” property cover included terrorism, excluded
war
• Some government programs/schemes:
• Consorcio de Compensación de Seguros
• Pool Re
• SASRIA
• Otherwise terrorism coverage written by the political risk market
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Key US terror events pre 9/11
February 26, 1993 – New York
Bomb explodes in garage of World Trade Center.
Insured property losss – $822m
fatalities 6
April 19, 1995 – Oklahoma City
Truck bomb in front of government building
Insured property loss: $192m
fatalities 166
Oklahoma City National Memorial
Source: Swiss Re & Insurance Information Institute
(1) Includes bodily injury and aviation hull losses. Updated to 2013 dollars by the Insurance Information Institute using the U.S. Bureau of Labor Statistics CPI Inflation
Calculator
(2) Differs from inflation-adjusted estimates made by other organisations due to the use of different deflators
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TRIA – overview
• Terrorism Risk Insurance Act (2002) passed fourteen months after 9/11 as
a federal backstop for insurance claims related to certified terrorism
events
• Terrorism Risk Insurance Program created – a risk-sharing plan between
federal government and the insurance industry
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Created in response to commercial policyholders inability to secure terrorism coverage
$100bn of annual reinsurance protection
All commercial property and casualty policies to cover terrorism
Year 1 – 27% businesses bought terrorism insurance
By 2012 – 60% (higher in metropolitan areas)
Reauthorised twice – 2002 and 2005
2014 – third time it has come up for reauthorisation
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Evolution of TRIA
Acts which qualify under the
program
2002 – TRIA
(expired Dec 31, 2005)
2005 – TRIA extension
(expired Dec 31, 2007)
2007 – TRIPRA
(expiring Dec 31, 2014)
Act of terrorism resulting in damage within
the U.S. or to U.S. aircraft, ships or
diplomatic missions. Individuals must have
conducted the act of terrorism for the
purpose of coercing the U.S. civilian
population or influencing U.S. government
policy.
As at 2002
Distinction removed between
foreign-domestic terrorism
Lines covered
Commercial P&C
- Excess insurance
- Workers’ compensation
- Surety insurance
Exclusions
Personal lines, medical malpractice, title
insurance, mortgage guaranty insurance,
federal crop insurance, health insurance, life
insurance, national flood insurance and
financial guaranty insurance
Amended
Commercial P&C
- Excess insurance
- Workers’ compensation
- D&O
Additional exclusions:
Commercial auto, burglary and
theft, reinsurance and surety,
professional indemnity (except
D&O), farm owners multiple peril
As at 2005
As at 2005
Program trigger
USD5m
After March 31, 2006 – USD50m
2007 – USD100m
USD100m
Insurance Marketplace
Aggregate Retention Amount
USD15b
2006 – USD25b
2007 – USD27.5
USD27.5
Post Trigger Federal
Assistance
90%
85%
85%
Individual Company
Deductible (% of premiums)
7%
2006 – 17.5%
2007 – 20%
20%
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Advantages/Disadvantages
TRIA
Advantages - TRIA
Disadvantages - TRIA
Stabilised the economy & market
post 9/11
Untested regarding claims
Carriers obliged to offer
Relies on government certification
Large limits available
Uncertainty regarding process
More capacity available in problem Only covers U.S. risks
areas than stand-alone
No developed stand-alone
terrorism market for Workers
Compensation
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Pricing inconsistency
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Advantages/Disadvantages
Stand-alone Terrorism Placement
Advantages – stand alone
Disadvantages - stand alone
Clarity of coverage
Limited capacity in “problem”
zones (zip code aggregates)
Breadth of coverage and global
placement
Proven claims payments and
handling
Capacity secured
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Who is buying terrorism insurance?
Industry sectors buying TRIA or stand-alone:
• Real estate (91%)
• Public sector & Financial entities (72%)
• Media companies & entertainment (82%)
• Tech firms (55%)
• 75% of top 20 US brands are buying stand-alone terrorism coverage
• Fortune 100
• > 70% of companies are buying stand-alone terrorism
• > 55% of companies are buying global political violence
Source: Interbrand & Miller research 2013
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Stand-alone underwriting considerations
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TIV and actual locations
Management of underwriter aggregate
Limit required
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Highest aggregate areas nationwide (source: QBE Insurance (Europe) Ltd)
• New York
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Times Square /Rockerfeller Center / Wall Street/ NYSE )
Chicago, IL 60606/ 60611
San Francisco, CA
Houston, Harris County
Dallas, TX 75201
Seattle, WA 98188
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How Terror risks are aggregated
Source: QBE Insurance (Europe) Ltd
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Denver ?
Source: QBE Insurance (Europe) Ltd
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Terror in the US…
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Source: QBE Insurance (Europe) Ltd
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Why buy terrorism exclusively?
US corporations with revenues of over $1bn have become more international
with 70% having overseas property exposures
Source: Miller research 2013
Paid claims
• Lebanon War 2006
• 2010 Thai political protests
• Egyptian Revolution of 2011
• Arab Spring
• Westgate Mall Nairobi, Kenya
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The devil is in the definition
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TRIA renewal debate
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Policyholders are seeking and want alternatives
Billions of dollars in private insurance capacity available
Stand-alone offers coverage for companies with foreign exposures
AM Best research re: non renewal of TRIA – only 4% of 220+ insurers
examined failed the stress test, due mainly to workers compensation
• Could a large-scale attack prove too costly for the private market – in
absence of TRIA?
• Nuclear and cyber coverages
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TRIA outlook,
rumours & uncertainty
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All percentages, thresholds and retentions subject to change
Possible inclusion of elements like cyber-terrorism coverage/NCBR
Certification process redrafted ?
Only workers comp cover, no property coverage
Will likely renew with different coverage triggers
Imminent or to the wire….
Many Firms are now looking to the stand alone market for alternatives
and for certainty of coverage post December 31, 2014.
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US Terrorism coverage options
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Continue with property all risk / TRIA offering
Secure with stand-alone terror option
Combination of property all risk / TRIA & stand alone coverage
TRIA captive wrap with options.
• Capacity commitment if TRIA coverage is already in place
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Conclusion
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Terrorism is a persistent threat – over 200 attacks in the USA between
2001-2012
Boston bombing aftermath shows that TRIA leaves some questions
Market has shown it is able to cope with large-scale losses, e.g. Hurricane
Katrina
TRIA, what next and uncertainty
Look at other options to cover your U.S. and international exposures
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Questions & Final Comments
The future of TRIA?
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KEEP THIS SLIDE FOR EVALUATION
INFORMATION/MOBILE APP ETC.
Please complete the session survey on the RIMS14 mobile application.
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Page 27
Terrorism coverage: lessons learned
from the Boston Marathon
bombing
Tim Press & Sean Jackson
Recording of this session via any media type is strictly prohibited.
Page 28